Biofuels drive new FAPRI projections

Biofuels are a driving force in agriculture and will continue to be, according to the Food and Agricultural Policy Research Institute's latest 10-year projections.

“It's hard to talk about a baseline without saying something about biofuels,” said Scott Brown, FAPRI livestock analyst during a recent press conference.

“We're expecting in 2008 that ethanol production from corn to be nearly 11 billion gallons and continuing to grow to 15 billion gallons. The recently passed legislation (by Congress mandating biofuel usage) certainly has an effect on ethanol production long-term.”

However, ethanol production is just one of the reasons why FAPRI — whose reports are relied upon by Congress when crafting legislation — sees crop prices “that have moved higher. When looking at the baseline, we anticipate those will continue to (remain) higher.

“It's also important to note that export demand has been strong in a number of cases. We've been surprised at the strength of corn exports given a major run-up in corn prices.”

In 2008, Brown expects livestock feed expenses “will certainly make bottom lines look much different than what was experienced in the last four or five years. In the case of hogs, milk, and cow-calf producers — all those returns will be squeezed from both feed and other energy-related inputs. The combination of those things has been the cause of the turndown in net returns for all livestock sectors.”

As for farm income, in 2008, FAPRI suggests a record net farm income well over $89 billion. “That's after a 2007 level of $87.5 billion. So we continue to see record farm income in 2008.”

Brown says it's very important to look at the sources of that increase in farm income. “We see much of the driver in 2008 being an increase in crop receipts — over $20 billion will be the primary driver.

“Looking at the livestock side of the equation, cash receipts are down in 2008. Largely, that's due to what's happening in dairy with lower cash receipts.”

Although predicting an increase of over $20 billion in farm receipts for 2008, “there's also a large increase in cash expenses. We see a lot of fuel-related increases.”

Another point Brown touched on:

“In 2007, the CPI for food outpaced the overall consumer price index by 4 percent. In 2008, we expect there will be another 3.7 percent in the overall CPI for food in the United States. That would mean back-to-back years of the food CPI moving above the overall consumer price index.”

Long-term, “the CPI for food will move back below the overall CPI for goods and services. So even though we see a couple of years of food inflation outpacing overall inflation, we expect it to turn around.”